Table of Contents
Introduction to the 10th Annual Fintech Review
Key Challenges for Fintech Startups in 2024
AI and Machine Learning: Transforming Customer Experiences
The Role of Regulations in Fintech Innovation
Competing with Traditional Financial Institutions: Strategies for Startups
Decentralized Finance (DeFi) and Blockchain Applications
Expert Insights: Quotes from Industry Leaders
Conclusion: What Lies Ahead for Fintech in 2025
Introduction to the 10th Annual Fintech Review
Welcome to Startuprad.io’s 10th Annual Fintech Review! This milestone edition reflects on a decade of fintech evolution and dives deep into the groundbreaking innovations, emerging trends, and challenges faced by startups in 2024. From AI-driven customer solutions to decentralized finance (DeFi) and regulatory shifts like DORA, this review equips startup founders, entrepreneurs, and investors with the insights needed to navigate the dynamic fintech ecosystem.
Key Challenges for Fintech Startups in 2024
Economic Pressures
2024 has seen a tough macroeconomic environment, marked by high interest rates and reduced funding opportunities. Startups faced significant hurdles in securing capital, making operational streamlining a necessity.
Funding Challenges
Fintechs struggled to adapt to investor demands for profitability. Layoffs and operational adjustments became common strategies for survival, as traditional funding sources dried up.
Competition and Cybersecurity
The year also saw intensified competition and increased cybersecurity threats, underscoring the need for robust data management and compliance with standards like DORA and NIST 2.
AI and Machine Learning: Transforming Customer Experiences
AI and machine learning have been pivotal in 2024, enhancing customer experiences through personalization and operational efficiencies. Key developments include:
AI-Driven Chatbots: Providing 24/7 customer support.
Credit Scoring Improvements: Leveraging AI for better lending decisions.
Predictive Engagement: Anticipating customer needs to offer tailored solutions.
As noted by Pascal Lauria, CEO of Cogia, AI adoption has redefined productivity and customer engagement across the fintech landscape.
The Role of Regulations in Fintech Innovation
DORA and the European AI Act
Regulations such as the Digital Operational Resilience Act (DORA) and the European AI Act are shaping the fintech ecosystem. These frameworks emphasize cybersecurity, data privacy, and operational resilience, pushing fintechs to innovate responsibly.
Compliance as a Driver for Innovation
Frank Schwab, Co-Founder of Fintech Forum, highlights how compliance can spur innovation by demanding transparency and accountability while allowing flexibility for business model development.
Competing with Traditional Financial Institutions: Strategies for Startups
SME Banking: The Next Frontier
Small and medium enterprises (SMEs) represent a significant market for fintechs. Strategies include:
Niche Targeting: Addressing underserved markets.
Technological Leverage: Utilizing blockchain and DeFi.
Collaborations: Partnering with traditional banks for mutual growth.
Simplification and Customer-Centricity
Simplifying financial products and enhancing user experience remain key differentiators for fintech startups.
Decentralized Finance (DeFi) and Blockchain Applications
DeFi and blockchain continue to disrupt traditional financial models by offering transparency and efficiency. Highlights include:
Tokenization of Assets: Enabling fractional ownership and improved liquidity.
Global Adoption: Cryptocurrencies like Bitcoin gaining traction as universal digital assets.
Pascal Lauria emphasizes that tokenization could revolutionize illiquid asset markets, bridging gaps between traditional finance (TradFi) and DeFi.
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The Audio Podcast
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Expert Insights: Quotes from Industry Leaders
Paolo Sironi, Global Research Leader:
“Regulation is an engine for innovation, as long as it corresponds to principles of transparency and accountability.”
Frank Schwab, Fintech Forum Co-Founder:
“Simplicity adds value. Overengineering often leads to inefficiency.”
Luca Frignani, CEO of Exaloan:
“AI and predictive engagement can revolutionize customer relationships, maximizing operational efficiency.”
Conclusion: What Lies Ahead for Fintech in 2025
As we conclude this year’s Fintech Review, the industry’s resilience and innovation stand out. Key takeaways include:
The growing importance of compliance and cybersecurity.
AI’s transformative role in customer engagement.
The potential of DeFi to reshape financial ecosystems.
Looking ahead, fintechs must continue to adapt, innovate, and collaborate to thrive in an increasingly competitive and regulated landscape. Here’s to another decade of fintech excellence!
Links to Resources
Watch the Full Episode on YouTube
Automated Transcript
Note: The AI had problems with identifying speakers and stumbeled with a few words. Please keep that in mind if you are readign this.
Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:00:05]:
Welcome to start up rad dot io, your podcast and YouTube blog covering the German startup scene with news, interviews, and live events.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:00:20]:
Hi, everybody. This is Joe from start up rate dot o, your startup podcast and YouTube blog from Germany. Today, I'm bringing you incredibly the 10th edition of our annual fintech review by stutterbreak. Io. This milestone edition marks a decade of exploring the dynamic fintech landscape, offering insights into groundbreaking innovations, emerging trends, and the challenges shaping the industry. For 10 years now, we have accompanied you during the holidays, and I'm happy to say many frequent guests came back. This year's review is especially significant as it reflects on the evolution of Fintech over the past 10 years while addressing the transformative developments of 2024, namely AI and the regulations, especially DORA and indirectly the AI act from the rise of AI powered solutions and sustainable business models to the increasing convergence of digital assets and traditional banking. The Fintech sector continues to redefine itself in the face of economic and technological shifts.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:01:32]:
In this comprehensive review, we'll bring you exclusive insights from industry leaders, in-depth analyzers of key trends, and thoughtful predictions for the year ahead. Whether you are an entrepreneur, an investor, an industry enthusiast, an analyst, this episode is designed to equip you with the knowledge to navigate the Fintech ecosystem in Germany, Austria, and Switzerland with confidence. Join us as we celebrate a decade of Fintechs join us as we celebrate a decade of Fintech excellence and look forward to the opportunity and challenges that lie ahead, let's dive into the innovations and narrative shaping the financial future of the DACH region and beyond. Therefore, I would like to welcome Paolo, the global research leader, banking and financial markets, best selling author as well as fellow podcaster.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:02:33]:
Most likely, I'm an aficionados, and, I just like it. So I'm happy to be here this year too.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:02:38]:
I would also like to welcome a frequent guest, professional board member, strategic adviser, and the cofounder of the Fintech Forum, Frank Schwab.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:02:48]:
Thank you. I'm fine. How are you?
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:02:50]:
I'd like to welcome back Luca Finani, the CEO and cofounder of Frankfurt based Fintech Exelon.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:02:59]:
Hey, Jan. Hey. It's great to be back.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:03:02]:
And I would like to welcome for the first time, Pascal Lauria, CEO and cofounder of Covia as well as coin analyst.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:03:13]:
Hi, Jorn. It's a pleasure.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:03:15]:
Let's start with the first question. What are the biggest challenges Fintech companies faced in 2024, and how are they adapting to these challenges?
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:03:27]:
So what we see over not only in 2024, but over the last couple of years that let's say the spirit of the beginning is over the economic slowdown and reduced finance can be experienced. So we have seen another couple of Fintechs closing the door. And, therefore, for the surviving ones, it's very important, to get the funding or to enter a stage where they actually become profitable. And and therefore, what we have also seen a lot of Fintech starting to streamline their operations. You we see, more and more, layoff of staff, in order, let's say, to, be able, to survive. So I I would argue 2024 was for many Fintechs a tough year. And, probably as long as the interest rates are as high as they currently are. Investors, have much more options, let's say, to invest their monies.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:04:49]:
And therefore, let's say, the Fintech investments and the Fintech funding, will probably stay at a significant lower level compared to what we were used, before.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:05:04]:
That's definitely a tough question that you're asking right there. So I would say probably you can summarize it specifically, with a with a view on on lending. I would say it was a combination of a changing macro environment, which was certainly pretty challenging for a lot of lenders because, you know, we've had significantly higher interest rates since 2022. And, I mean, the expectation was that the rates will be coming down fairly quickly. They didn't. And, in our estimates, they won't be coming down very quickly as or as quickly as many people expect. So that means cost of funding is pretty high for a lot of lenders. And, that was certainly something that was also one of the one of the challenges, I would say that had its implications, A, on equity fundraising, but also B, in general, if you're, you know, a lending fintech, then basically trying to manage your cost of funding and cost of capital.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:06:02]:
And so we have seen that pretty much this combination of a tough macro environment and then also the difficulties of actually raising additional equity capital, in particular for debt facilities. That was one of the main issues that affected kind of the ability to lend at affordable rates for a lot of balance sheet lenders or lending Fintechs. And that was kind of the overarching theme that, you know, that we see and that we work with a lot of these lending platforms to rethink how to actually build alternative funding sources, how to actually access new ways of capital in order to be able to continue lending and to be a bit more resilient. And, that was that is certainly also one of the things or one of the themes that we expect to to be continuing, when we enter 2025. And I mean, that is also accompanied with, you know, VCs or or investors expecting a clear path towards profitability, and reduced dependency on on essentially equity fundraising. So that's what we've been seeing. And, yeah, that was a pretty tough environment to operate in, especially in in all aspects, you know, within Fintech lending verticals that we've seen. And, yeah.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:07:25]:
So there there is a lot of, a lot of movement going on and, definitely, what we see a lot of different approaches on how to how to mitigate this going forward.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:07:36]:
Well, I think it's a peculiar challenge in the sense that we are coming to the realization that Fintech innovation is making a big impact. And that comes through the innovation of artificial intelligence. It was on everybody's desk, the discussion about the generative AI, and now we're moving from large language models to larger reasoning models. The only issue with this one is that, this type of technology is owned by a few big companies that basically, demands others to use their services, which comes with sort of complexities also for the Fintech. So they're not owning the AI percent anymore. They need to rely on bigger ones. There is a pricing point. There is also a privacy point that has to be considered.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:08:25]:
So this is to me a shift in the way technology will be deployed from the fintechs to the bank. So it will be interesting to understand how the ecosystem around the generative AI will take shape because that will influence the configuration of the Fintech world going forward.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:08:44]:
So, Paolo, you think AI regulation will have impact on Fintech?
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:08:51]:
Well, regulation always have an impact, on, the way the Fintech operate because in the end, it dictates the boundaries, under which the banks have to work and the Fintechs that become banks have to operate. On the one side, when regulation is too clear, sometimes, is too, if you like, restrictive, it's too precise in a world that requires flexibility. On the other side, the way regulation is not there yet, there is sort of, a gap between, the art of possible as many are not be comfortable to put down their investments, if, it is not clear what will be allowed and what will not be allowed. So I think that there has to be a new rethinking about how regulation is impacting financial services, at least thinking first principles instead of thinking roles. Because many things are really happening in the realm of technology. And I'm I'm I remember fearing that, you know, too narrow, if you like, rails might not allow the innovation to to be competitive, especially in the European continent. At the same time, you know my work literature. I'm an institutionalist.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:10:05]:
I do believe that regulation is an engine for innovation as long as, it corresponds to the key principles asking for transparency and accountability and leaving then the industry somehow to identify what is the best business model to work with.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:10:20]:
Well, we have several challenges. Number 1, of course, cybersecurity threats are increasing. Right? So, you might have heard about the Evolve Bank that has been attacked by ransomware. Right? So this is this is definitely something we, especially as start ups and the Fintech side, have to, you know, watch for and be more cautious about. Right? Security is a very important topic. Regulatory compliance is a big thing. So this is this year, NIST 2, DORA are becoming, you know, set in stone, and companies are the big fintechs needing to apply Dora and NIST 2, you know, standards. So if you want to play in the same field as a as a fintech, you need to, you know, make sure that you kinda keep with the same standards, right, even with the traditional players.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:11:10]:
So this is definitely very big resilience in communication, for example, stuff like that. There's a lot of things that we need to worry about. Well, data management issue is a big thing as well. Like, Fintech struggle with data silos. Right? They need to connect all those data, and that is a big challenge. And, of course, to be honest, we have intense competition. So it's not like an easy walk anymore. So we're tough competition.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:11:38]:
I think these are the main challenges, to be honest, in 2024.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:11:41]:
AI and machine learning have been definitely the buzzword of this year. So how are artificial intelligence and machine learning transforming, especially the customer experiences in Fintech and banking?
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:11:56]:
Yeah. AI and machine learning, that was kind of the buzzword of 2024. Right? I mean, so we've we've seen a broader use of AI both internally and externally, which is pretty interesting. We as well, we are a big, we're a big user of, of of generative AI, particularly internally, to actually increase productivity, on on, particularly on coding and, on essentially summarizing content, creating content. And, but we've seen also some elements around customer support, where you have, you know, AI enabled kind of chatbots to be reachable 20 fourseven and just to improve kind of the the customer, the customer relationships, borrower relationships, and the like. And we've also seen, again, with a focus on lending, we've seen, you know, enhanced models and tendency to start implementing AI in in credit scoring. Basically, aggregating more and more data, trying to, trying to come up with ever more creative ways to assess probabilities of default and ultimately, you know, make better, faster lending decisions. And, that's certainly the the name of the game, but it's in fairly early stages so far from what we see.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:13:14]:
Well, I think that you can think of the latest 10 years of innovation in banking this way. And I'm simplifying a bit, taking from my 2024 global outlook for banking and financial markets. And in a few weeks, I will release a 2025 global outlook for banking and financial markets. So what did we say at the beginning of 2024 is that 10 years ago is when the banks understood that their cost income ratios were not sustainable as a consequence of the global financial crisis, very low interest rates, high cost of capital. They needed to, if you like, the risk. And, therefore, the marginality in in the core revenue pools of banks started going down. And so in order to rationalize and cut costs, what did banks do well? They could close branches in essence. And at the same time, knowing that consumers were more and more inclined to use mobile or websites to do banking, they started lifting and shifting on cloud.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:14:12]:
Lot of their operations in order to power up this, if you like, mobile technology, okay, in different forms, they're getting a bit more flexibility to do so. But those were years of, let's say, outranked the digitalization. So the primary was cloud or infrastructure transformed to put a branch on mobile. However, banks realized that that wasn't enough because it is not easy to self direct yourself on a mobile bank. And and therefore, banks started learning through time that machine learning was relevant in order to create personalization. So what about you go to your app and you see the things that you care the most? So you may have a lot of things happening on your app. It could be confusing. So with machine learning, you can basically receive a service which is a bit more personalized, cleaner if you like and use it to use.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:15:03]:
However, even if banks apply machine learning at best, that doesn't necessarily mean that mobile banking is generating enough revenues that basically cover the cost of running mobile banking. And that's very interesting because I've been talking to a lot of banks and new banks worldwide, and a lot of them got trapped into the situation where they turned the core banking architecture into a variable cost structure using a cloud or cloud native, which is okay as long as you can control that variability. And through the pandemic, volumes skyrocketed because everybody went on their apps to check the bank account. But every time you click on something, there's an API that hits a cloud resource, which means the dollars you have to spend. So they ended up with a lot of activities on the mobile banking, but not enough revenues because most of those activities are due to their margins. And and the reason is because there is typically distance between the consumer and the banker that requires a relationship. I discussed that lengthy in my literature, especially the latest bestseller banks and Fintech on platform economies. But things started to change now because, if generative AI is known for something, it's about language.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:16:15]:
So So now this is the time where communication becomes effectively the core element of business transformation. You may remember that years ago, I was already talking about conversational banking. So we went from outright digitalization that is a cloud through personalization, which is AI in terms of machine learning, into generative AI, which is now the elements of communication. Still to be seen how AI would be effective in doing that. There are a lot of concerns. Of course, there is risk management that needs to be created. Just because you can access it, that doesn't mean you can use it if you don't have a strong platform to enable you governance of the AI. But this is basically the way AI is now reshaping the focus of bank's investment and therefore where Fintech will focus to be successful?
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:17:06]:
Not me, but a friend of mine. Is it another in in a Fintech? Or let's say startup, not Fintech. Let's call him startup. He he has he has applied it. Unfortunately, because of the rules, he always has to say, you know, be careful, customer. This is an AI making you support. So you have to be transparent. I would have loved just just let auto let's call them auto, you know, speak frankly and not have, like you know, scale the people.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:17:30]:
AI is not responding to you. Like, I would rather have, you know, not having to have to mention that. But, oh, well, these are rules and regulations. Yeah. So I know people. I'm thinking of using it. Right now, my business is just in the start, you know, with my copy trading and my quant algorithm as you know. And I am thinking of applying those cool, you know, accents for the targeted regions that we want to go after.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:17:54]:
Right? Alright. Another very interesting part is you can do proactive engagement by predicting customer needs. So using the data, having the AI, the AI can help you, like, having predictive engagement. Like, it's seen that now this and this could be useful for the customer. So that that is another revolutionary thing that you can maximize on your lead pool, and, you know, and the engagement possibility be by being proactive and not, you know, reactive. Right? So being proactive to see, you know what? Now a change of loan would be useful for you. Right? Now we have better terms that you could benefit from. Proactively looking at your situation and your data.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:18:34]:
The AI could be very valuable for this. And, of course, I mean, the operational efficiency. Right? AI was, you know, automating routine tasks, all this kind of stuff. This is really fun. I mean and let's not just talk about AI. It's basically machine learning combination with AI. Right? Certain tasks are not ideal for generative AI. So that for that, you wanna have clean machine learning that does very precise tasks, but then the generative AI will take that result and make it flow in flowery words.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:19:05]:
And like I said, OpenAI, no, just really store up. Right? Also there, we could provide even cool help videos. Like, amazing. Yeah. Like, imagine. Like, you know, I could even give the person attractive, you know, help videos and get give them guidance even you know? And this this is the the the possibilities are just tremendous. Right? So AI is gonna be revolutionary. You will be very efficient.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:19:29]:
You can have very heen teams and be very effective to do quite a broad task, like, you know, bandwidth of tasks using those AI agents and bots.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:19:40]:
So whether that's now specific to Fintech or not, I think that's a very, own question. For sure, we experience, let's say, the chatbots and the improvement of the chatbots in order to interact with the customers in an automated way. That's not only due to generative AI, but in general applying, let's say, machine learning and, let's say, grading and and insightful but automated, contact center with with the customers. So that's something which has significant influence. However, we will also see, in, let's say, general banking themes like AML, fraud, cybersecurity, the impact, not only on the Fintech, but also on their customers. So, in in terms of balancing convenience with security, empowered, let's say, by by by AI. So these are basically, let's say, what what we can see going forward, I would also expect that we see much more personalization. That's probably due to the fact that I I, has the algorithms and has the capability to cater products and service offerings, to individual needs.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:21:24]:
I would argue we are still at the very, very beginning of that whole new theme of artificial intelligence, so I would expect much more to come going forward.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:21:36]:
What do you think? What role do regulations and compliance play in shaping the Fintech innovation this year, 2024, and looking into future 2025, think about the AI act, Dora, and so on?
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:21:50]:
Well, as I have mentioned before, right, we have Dora and this too. It's right here. It's happening right now. So this is gonna influence us. Right? And there's the European Digital Operational Resilience Act coming as well. Right? That will also force companies and Fintechs to come up with solutions, ideas, innovative ideas, how to be able to comply to regulations but keep the costs low. That is our opportunity, our chance to try to see how to make it possible to have compliance but without a big overhead by using automation and intelligent, you know, solutions. Right? This is the key because compliance and regulations always produce costs and overhead.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:22:34]:
That's the thing. Right? So this is one. And the what else can I say to you, about this? Yeah. So it will drive innovation, right, as I said. And there's gonna be a higher focus on data privacy. So we gotta be careful about privacy. Also, when using AI, we we have to be very sensitive on the regulatory, you know, about data privacy. You know? So it's not as you know, we have to be careful not just to use any model out there.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:23:04]:
You know, we have Gemini. We have Cloud AI. We have Mistral. We have all these things, all these players. And we have to watch, is this g g p r compliant. Are we moving data out there? Or do we have to take LLM models internally, train them, and then order to compensate and have this kind of same kind of service in order to fulfill the regulatory requirements? So this is gonna be very interesting to see what they will accept, especially on the privacy part of, of, you know, in the Fintech space because privacy is everything. Right? Fintech is about trust. So privacy is one of the key areas, right, that need to be watched for.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:23:37]:
Now, you know, as we just said, the regulation is, is, super important because it it lose all things together. I think that what is the most interesting to me in terms of regulation is what will happen when money will become more digital. So everything that moves around the money moving movement, there is the digital euro, for example. So the next year is the year where the first phase of the project definition will be done, and therefore, the European Central Bank will have to define what is the next course of action, which also requires, if you like, to create the legal and the regulatory framework around that, then make it all effective, not just for technology, but also regulation. So that is the one piece of the rule making that makes me more curious. Also, the intersection of all of these with the monetary policies. I I keep on seeing, for example, up from the BES, a lot of wonderful papers that are very technical, but not much discussions about the business implications in terms of the the monetary policies and so on and so forth. And and I think that is needed.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:24:51]:
So I hope there will be more research and discussions around that.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:24:55]:
I wouldn't necessarily say that, you know, regulation and compliance is actually shaping innovation. I I don't really have a lot of conversations where these are actually the 2 most favorite and most popular topics when I talk to other people. But, I think, yeah, in terms of in terms of regulation, the 2 big ones out there are DORA, so the Digital Operational Resilience Act, which is going to be phased in from, actually January 1st. So this is this is something that, we, but also other Fintech lenders, have had on their minds, because it particularly touches elements of cybersecurity and just making sure that you're, you know, that you're operationally resilient. In a way we think it's kind of a good thing because similar to, you know, other regulations like crowdfunding service provider regulation and so on, it's aimed at effectively leveling the playing field a bit. And additionally also improving kind of the resilience of of, Fintech lending business models. So in a way, it's a good thing. On the other end, obviously, additional processes that need to be designed, and, just additional sort of checks and balances around, you know, how how secure is your whole IT infrastructure with respect to cyber threats.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:26:20]:
So in a way, that that is going to probably also lead to additional, additional focus for a lot of players to reinforce kind of their processes and their infrastructure, which I think is gonna help overall the maturity of a lot of, of a lot of fintechs. But that's probably one of the one of the regulations that's going to shape whatever is happening in in the fintech space in 2025. And then on, on the longer time horizon, obviously, also the European AI Act, although our view is that there are still quite a few clarifications needed, especially in terms of, you know, the overarching kind of impact this regulation is going to have on the use cases and how also data processing is going to be affected by the regulation. And so we're not expecting this to be to have an imminent impact, but but certainly, like, over a 2 to 3 year time horizon, this is also going to be one of the elements to to think about.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:27:21]:
So probably one of the biggest impacts we are currently facing is DORA, so the Digital Operating Resilient Act, especially here in Europe. But we also see that kind of thinking from the regulators, all over the world. So the, let's say, digital and and cyber resilience is becoming more and more important. The same is true for everything around team money laundering, and let's say, know your customer exercises and compliance, the requirements grow tread grow steadily. And what you have seen with some of the well known neobanks, so not only established traditional banks, but also the neobanks and Fintechs. They have faced significant fines on being not compliant. Therefore, let's say, regulation is becoming a key competence for every player in the banking and the Fintech scene. If because if not, compliance will make sure that they cannot, let's say, create and increase their business as we have seen with n 26.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:28:52]:
They were not allowed to onboard new customers for quite some time. And but but they are not alone. Other players, not only the traditional banks, they they got, let's say, their problems as well as they grow significantly, and not complying with all regulations. So so and and long message short, going forward, regulations will increase and increase and increase. And you need to generate strategies that you can fulfill them efficiently and effectively.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:29:29]:
What strategies should Fintech startups adopt to remain competitive against traditional financial institutions and the other way around? If you also have an answer for that.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:29:42]:
I did a Fintech too. Okay. I tell you what happens, And I really tell you what happens. I saw it coming, then the pandemic sort of delayed it. But most of the competition in fintech applied to the very symmetrical businesses like payments. Okay? Because then you can get volumes or a retail where you can get simplifications around the way you deal with large courts of people. Yes. You can divide them into wealthy, not wealthy, older and younger, or maybe be more personalized.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:30:15]:
But largely speaking, it's a mass market that got commoditized. So now that happened. The commoditization happened. What is left out of these are large corporate, for example, that many can do that is strong relationship based. You You could do 30 finance, but strong relationship based wealth management, which is still a bit difficult and complex to digitalize because of, if you like, the distances that always discuss between what people need and what banks offer and the relationship in between. Remember, the iPhone is a technology that demand most of these, instead of businesses, operate as an offer industry. So you need to put an offer in this on demand technology. Possible, not easy.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:30:54]:
But there's a big segment which is super important that banks forgot like a forgotten child. And the reason is because it is too varied for them to systematize easily, and that's the small and medium enterprise market. Those of the Mittelstand in Germany would be. Now guess what? 90% of firms worldwide are SMEs. In Japan, 99.7%. Just to say it's not just an emerging market. 70% worldwide of the workforce work for an SME, and 50% of GDP worldwide is produced by SMEs. So that's a huge market for banks to serve.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:31:39]:
However, there's a high cost to serve because all of these are different. There's a lot of manualities. They are very risky. So banks transfer all of these risk management, if you like, less comfort and complexities in onboarding clients into cost that the SMEs have to pay. And so in the Western world, the SMEs pay up to 3% more than large corporate when they borrow money and up to 10% more in the emerging markets. Now after 10 years of innovation, especially with AI, we're at the point where banks can tackle the complexities of the SME market. And that's the reason why I'm seeing a lot of competition between banks and the neobanks in banking for SMEs. To give you an example, I just released a research from the IBM Institute for business value banking for small and medium enterprises.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:32:32]:
And I got not only large banks discussing the topic, but also unicorns like Nubank. Nubank is 100,000,000 retail customers, a new bank in Brazil with 30% return on equity this year. And they're now stepping into the SME market, basically stepping up the competition with banks where there is more, if, like, presence because all of these manualities require, like, branches, back offices, and people. And so that is where the competition is intensifying in 2025 and for the next 5 years. So all of the Fintech that listen to this, year end review get this one clear. SME Banking is the next battlefield of competition between banks and unicorns.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:33:21]:
Well, you know, it's the same as me. We we're like a I mean, I see myself as a mini Fintech, you know, start up, you know, also embracing crypto. So I think, there is a lot of opportunity. Number 1, I think you need to do niche targeting for, you know, fintechs. Now we we gotta find new niches. That that's a key aspect, definitely. Leveraging our technological benefit, you know, being a start up, you know, using the latest tech, but also open being open minded to the latest development. Like, I think, like, blockchain is a big part, and DeFi is a big part of it.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:34:00]:
Embracing that is gonna be big. And this can help, Fintech companies to compete against traditional organizations that might be not as open for it and not not as agile to those changes changes in trends. Right? So there's a lot of benefits coming with Blockchain, and it's gonna and it's very beneficial and especially for the Fintech space. And I would recommend, you know, the strategies for Fintech startups should be also trying to build partnerships either with additional other Fintech companies to, you know, together you're stronger. Right? Or with solution thinking, right, for the customers. But, also, I believe in this kind of hybrid models. If you can have an entry and leverage with a traditional bank, leverage their customer base, leverage that that experience that they have, and then benefit and have them benefit from your innovation, and your agility, that is, I think, the best combo. I mean, me as a Fintech starter, I would love to have, like, a UBS as my customer and offer, let's say, because of my product, my quant solution, their wealth management, my product to their customers.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:35:04]:
Imagine, that would make me fly. Right? So this kind of combination of having, the power of the traditional with the customer base, with the financial backup, and and then the innovation and Fintech startup startup on the other side, I think that would be beautiful. And I I would love to see more of that, by the way. And, of course, having customer centric approaches. We need to differentiate. I mean, this should be the strategy for Fintech startups. Making finance is complex. Take away complexity.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:35:35]:
Make it easy. Make the entry easy. Take away the complexity. That's the key thing. Make it user, like, user make the user experience as as simple as possible. And this could be our benefit for startups in and our advantage, towards those traditional institutes.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:35:54]:
Honestly, I think it's not really about being competitive or competing, between, you know, incumbents and Fintechs, I think the future really is going to lie more in cooperation, at least as far as, you know, lending is concerned. If you want to simplify it the way we look at it is, you know, incumbents, incumbents like banks, asset managers, and so on. They sit on a lot of assets. Fintechs have a great tech stack, but, ultimately, it's the combination of the 2 that is really yielding promising results and ultimately also attractive, you know, economics and attractive ways to actually generate revenue. So, we actually think that, you know, building out partnerships is going to be a name of the game, also going forward, especially in in lending verticals, just because, you know, having balance sheets or deep balance sheets is just really difficult to come by or, like, you know, building out a deposit base. It's just such a tricky thing to do for, for a lot of Fintech lenders. And so if you can partner up with a financial institution that can kind of give you the firepower so that you can, ultimately satisfy the borrower demand, then that's probably an important way to go. And I think one of the great examples here was, kind of the, unit credit slash and and banks were transaction, where you can definitely see, you know, you have, a digitally enabled player, fintech that is able to essentially create a lending product for smaller businesses, and they can lend with more attractive unit economics.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:37:37]:
And, ultimately, they have an institutional backer that provides access to the funding, and you can create a great partnership model out of that. So that will be kind of our expectation of, what's in store, also in in 2025 when we're talking about how is the landscape going to evolve and what's the dynamic going to be between, you know, incumbent institutions and and Fintechs going forward?
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:38:02]:
So unless you are already a super large Fintech, we may we may remember PayPal at the beginning or 10 years ago, which we call the Fintech. Right? So these super large players, they keep trust their strategy and grow. So for them, basically, I I believe, of course, they need to stay competitive, but with established business models, they just follow their strategy going forward. However, for small sized, medium sized vintage player in very crowded, markets, for me, it's very important that they solve a real problem. So they really need to solve an urgent problem, where people suffer or where they enable something which was not before. And that basically, they need to follow a niche strategy. So having a very narrow product or very narrow service, which really solves a problem, or caters a need. And then they take it from there.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:39:24]:
And and, it's this famous 10 x. You you you somehow need to be 10 x better or perceived as being 10 x better or 10 x cheaper, or promising something which is, let's say, very different from what it's already available into market. And ultimately, I think the biggest challenge is also to develop your business. So let's say, having a great product and service is good, but being able to sell it with, let's say, reasonable margin in order to generate at some point in time profits. I think that is that is the other side of the metal where you are with many, many Fintechs struggle. And but that's where they have to compete.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:40:23]:
How is decentralized finance, DeFi, impacting traditional financial models, and what's next for blockchain applications?
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:40:32]:
Yeah. That's a pretty interesting question. You see the Bitcoin sign in my bet background. So I'm participating in that community from a very early stage since 2013. With respect to DeFi itself, I still believe there is a long, long way to go. So, what we are currently experiencing is that we have here and there, let's say, some early projects with if you look at top down very limited view, a reach with with with limited reach. So let's say tokenization of any kind of assets. Yeah.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:41:32]:
Projects are launched, but but volumes are still very, very low. Totally different to, let's say, the cryptocurrency space, where if you look at the, let's say, top 100 cryptocurrencies or blockchain projects, or platforms, they have at least reached a significant, market volume and market capitalization. You also see significant transaction volumes, whether it's for speculation or not, that that's something we can discuss, but, it's actually growing volumes and and and growing transactions, and more and more users and more and more wallets available beyond Bitcoin, Ethereum, Solana. Bitcoin, I would argue, it step established itself as a kind of universal digital asset accepted, across the world while at the same point in time, we see significant global shifts in terms of trade. So we see that trade actually is much more regional. We have from a politic political point of view, let's say globalization is at the point where we go back to some extent. It's from pure globalization back to regionalization and localization. And we also see a decrease of the dollar in terms of relevance when it comes to global trade.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:43:40]:
It's still the most relevant one. However, let's say the the the dominance reduces year by year. And, we may end up in a situation, where especially Bitcoin is, let's say, the only digital asset which is accepted by all parties from China, Russia to Europe and the US. And that's very interesting because if you would have argued something like that 15 years ago, people would have called you nuts. But if you now look at that China already has 0.9 of all the Bitcoin. The US has even before Trump, the US have 9.9 percent 0.99 percent of all Bitcoin, basically 1% of all Bitcoin. And that other governments and central banks also starting discussing, the concept of a Bitcoin reserve, then we see a total different development. Right? So so if if if we count that also as part of being DeFi, then you see that Bitcoin as it's as an asset class somehow has established.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:45:14]:
Also, almost all banks globally, work on some kind of integration or have already done some kind of integration. And also companies by now. So it's not only, MicroStrategy, who, let's say, have a clear Bitcoin strategy as, let's say, in the treasury function, but also many other companies are currently discussing that. So so so that's basically for Bitcoin. But if you then look at the, let's say, classical platforms, like Solana, like, of course, Ethereum, We may even discuss, as being a platform. At least they have some traction also in the real world, with, let's say, providing a solution to selected, problems where, let's say, a blockchain platform is a proper solution. Still speculation significantly higher than real business, but real business comes. And I think if we if we look at what's happening now in that whole space, the focus will turn significantly more to providing applications and use cases, to leverage, let's say, the assets already generated in these different digital, currencies, asset class, you name it.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:47:07]:
So that that's something which I believe would will come next. So probably but not only next year, that's something that's a development over the next 3 to 5 or 7 years, which basically means from concept, to implementation into, let's say, daily processes. So I really believe in 10 years from now, we have a total different situation. And we are now at that turning point because there's so much money money, volume, and, assets into that, let's say, digital asset space that you now can actually start, leveraging on. And also the number of players increased significantly from, let's say, at the beginning, a million now to a couple of 100,000,000. So so that's the the a a pretty new dynamic, on all fronts. So I expect, that we are soon as on a turning point where we say, okay. It's not only about the innovators or the early adapters.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:48:23]:
We go now early mass into that segment, and, basically, the the numbers confirm that that we have, in many developed and developing countries, 5 to 10% of people who somehow own, let's say, cryptocurrencies or crypto assets. Even if it's now many for speculation reasons, it can be transformed into, let's say, more day to day relevant themes. Now that basically is my view on on that. Still also early days. However, the theme will find its place in the financial global system?
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:49:21]:
So I'm gonna that that's such a vast field, so I'm gonna boil this down really to, again, our our area of expertise. We're big believers in in the tokenization of assets and and real assets. So we really think that in particular in in illiquid asset classes, private equity, private debt, There is so much, efficiency that can be gained when you create, like, you know, fungible wrappers around these assets in order to make it possible to, you know, reduce friction of of trading these assets, going forward. So tokenizing illiquid or real assets and and reducing or removing intermediaries in the process, that is going to add transparency, reduce cost, and so on. So we think that's really the areas where tokenization slash by extension DeFi, can add a lot of value or is going to impact kind of traditional traditional markets. And so, yeah, I mean, that's that's kind of the the focus area where we see kind of immediate impact as a low hanging fruit. So basically, you know, tokens kind of being the the next level of, of, of wrappers or next level of of securities. And we see them also over the medium term, you know, tokenization to replace traditional fund structures or maybe, you know, even being a more efficient wrapper for securitization.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:50:49]:
That's that's kind of what we would see is on the horizon, because there are definitely, benefits in terms of costs that can be reaped very efficiently. And ultimately, it's going to lead to a bit of a conversion or to a bit more seamless connection between between TradFi and DeFi. So, yeah, it's it's also essentially going to then enable, you know, more traditionally DeFi minded investors to access, you know, real world assets if you have a wrapper that kind of works for the new ecosystem. And yeah. So, ultimately, we think that's that's gonna lead to a bit more connectivity and more exchange between the 2 ecosystems. But, yeah, that will be pretty much the most imminent, kind of development that we see.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:51:39]:
I have a lot of friends working in the DeFi, and I know that I'm a bit of a contrarian here. First of all, DeFi doesn't necessarily change the business model for most financial institutions yet in the capital markets, maybe when they look at the professional businesses. But largely speaking, biggest bulk of banking is about relationship with clients. And the business model is about how you demonstrate the value and get clients to pay for that. So so DeFi has not yet clear understanding of what it means basically to justify the value for money, which is not the DeFi per se. However, DeFi can bring some transparency, which is clearly relevant for me because transparency will be, if you like, a key element and a competitive advantage going forward. However, what for me has happened in the recent years is that there is too much overengineering. When something is overengineered, it never works.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:52:36]:
Even think about the rockets of Elon Musk. They look simple and neat. Right? So overengineering does not work, does not generate enough value. Now what does it mean? I give you an example. You can have a project for 1,000,000,000 to develop a central bank digital currency, which might generate some benefit and most likely is interesting and, you know, high value. But then you can spend less than 10,000,000 like the Brazilian Central Bank to release the PIX, which is a framework for instant payment. They got adopted in 2 years by 160,000,000 Brazilians. So now simplicity add a lot more value to the world needs today compared to the complexity of some technology elements, which are, if you like, overwhelming in terms of, you know, the the cost of the effort and the result.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:53:28]:
So I think that in the DeFi world, I've passed the the crypto craze, which is something else. They have to really go back to principles. 1st principles to understand that if it's not simple, it will not fly. By the way, you know what? Even if let's talk about something a bit different than the 5 are still in banking. Talking to so many new banks and banks, when they offer products on mobile, those products needs to be simple for people to understand them, okay, and to basically get the value proposition right. I'll give you an example. There is this bank that told me recently they have 2 loans on the app, and that's the same loan, but one contains an option which basically is an insurance for the loan, which for the client is also good for the bank because they add extra revenues. Now when they sell these 2 products in the branches, 90% of people buy the one with the option inside with insurance.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:54:33]:
On the mobile, 90% buy the one without. Because a mobile, like simplicity, convenience, is is what people get trapped into immediately. So so digital brings, in any case, the simplification of the product framework. The problem is that banks are used to prop up products with features in order to add fees around that, and that doesn't work well on digital. So the transformation of the business model is is is going around basically the way people perceive the value and therefore the way you get monetization out of that. That is that is the key element that everybody needs to consider. So simplification is a part of the digital framework. It is not bad per se as long as you throw away, you know, the unwanted features and keep those which are the most important for the customers, and you're capable of explaining them.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:55:25]:
So across the board, on the business model, in the technology stack, simplicity is a key principle, pairing transparency.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:55:33]:
I think decentralized science is is I think it's a it's a revolution coming. Right? And it's growing. It's been it's a bit it's been a bit slow during the crypto winter. But right now with the, you know, Bitcoin a 100,000 with the euphoric like right now people being euphoric again with Trump coming into the leadership and being pro, crypto. I think crypto is gonna just roll into the it's gonna come. I mean, think about it. Decentralized finance takes away the immediate immediate intermediaries. It it is a beautiful and critical part especially for unbanked and the emerging markets.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:56:13]:
So, yes, if you live in the Western world, you might not see it. But if you're in the emerging market, decentralized finance might be already there. Right? It's the best way to, you know, offer, you know, to lend money, to borrow money, right, to invest, to trade. All this is possible with decentralized finance. So, there's and and and and there's there's this possibility to quickly get in because we have this kind of discriminatory, you know, set up that it's not easy. Not everybody can have a bank account. Right? So all these billions of unbanked right now with decentralized finance can, you know, it democratizes the financial system and lets them be part of it. Because now it's easy.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:56:54]:
On your smartphone, everybody has a smartphone. You have a wallet. Bam. You're a member of a financial community. You can now borrow money. You can lend money. You can, you can trade. You can even invest all on crypto.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:57:05]:
So I think decentralized finance needs to be watched for, and it's a good way, you know, to actually, you know, substitute banks and or, you know, the the basically, the traditional banking role is under attack, especially in emerging markets if they if they don't, watch in a and maybe embrace also, decentralized finance.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:57:25]:
Friends of celebrate. Io, as this year comes to a close, we want to take a moment to thank you for your incredible support throughout 2024. It's been an exciting journey, and we're truly grateful to have such an engaged and inspiring community of listeners, readers, and partners. We wish you joyful holiday season filled with love, laughter, and relaxation. Merry Christmas. Happy New Year. May 2025 bring you success, happiness, and plenty of exciting opportunities. We'll be taking a short break to recharge and reflect, but we'll be back in January with brand new episodes of starter break dot io packed with insights, stories, and updates from the startup world.
Paolo Sironi | Global Research Leader Banking and Financial Markets & Best Selling Author & Podcaster [00:58:18]:
Thank you for being a part of our journey. We can't wait to connect with you in the New Year. Thank you very much. Happy holidays. Enjoy your time off.
Luca Frignani | CEO and Co-Founder of Credit Platform Exaloan [00:58:28]:
And thank you for having me. And to all the audience out there, Merry Christmas and a happy and healthy New Year 2025.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:58:37]:
Appreciate it, Yeah. Thanks so much. You too. Have a lovely Christmas, happy holidays, and a happy New Year.
Frank Schwab | Co-Founder Fintech Forum and multiple supervisory board member [00:58:43]:
Merry Christmas. Happy New Year. And look, always beat me with his Christmas jumper. I have a red one, but, you know, I can't compete.
Pascal Lauria | CEO and Co-Founder Cogia & CoinAnalyst [00:58:52]:
Okay. Merry Christmas. Happy New Year. I was just thinking of how do how does it say happy new year in, in Chinese. I forgot how to say it in, how to say happy Christmas in Chinese, but and in Spanish. So thank you very much. Greetings from Frankfurt.
Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:59:28]:
That's all, folks. Find more news, streams, events, and interviews at www.startuprad.i0. Remember, sharing is caring.
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